The Coming Cloud Gaming Wars

War Games and Game Wars

Today Microsoft demoed their new xCloud gaming service. Next week Google will do the same at their “future of gaming” event. Meanwhile, Sony takeover chatter just sent the stock of Take-Two Interactive up 6%.

This frenetic pace of news makes it clear that we are entering a new era in the gaming world. With tech problems around video game streaming mostly solved, and an industry that does 100 billion annually up for grabs, the world’s tech titans are all getting ready for battle. Let’s take a quick look at the behemoths that will duke it out for global gaming domination.

The Players

Microsoft

I think that Microsoft has a great chance to be the so-called “Netflix for Games”. They have the second-largest enterprise cloud service in the world, almost 20 years of gaming experience with Xbox, as well as thousands of titles to seed a new subscription offering. To that end, they’ve also beefed up their gaming division by acquiring a bunch of game studios. More importantly, the Xbox division has experience in creating hardware for the client side of cloud gaming — think wireless controllers and thin client consoles. Combine this with a company that has learned from it’s failures in the mobile era, and you have a real contender.

Sony

On paper, Sony looks like it has a formidable arsenal to bring to this fight. The Playstation brand is among the most respected in gaming, and the associated hardware is the best in world. Sony already fields an existing, though not -very-popular cloud gaming service in the form of Playstation Now. The company’s Playstation division also has some of the best game studios in the business and game IP that includes God of War, Uncharted, The Last of Us, and more.

Still, Sony has never been very savvy about the internet. Their Playstation Network has suffered hacks and downtime, and has refused to play nice with other systems. It remains to be seen whether Sony can fully shift to a cloud mentality.

Google

Google has the best engineers in the world, so it’s no surprise that they were the first to show off a truly functional game streaming system. Those who played the demo of Assassin’s Creed Odyssey in a chrome browser report that the experience was surprisingly smooth. Still, Google has no resources currently devoted to gaming hardware or software. They’d likely need some major acquisitions in the space if they wanted to get serious.

Amazon

One should never underestimate Amazon. In my mind, they are the sleeping giant of the gaming world. They have the world’s number one cloud, hooks into the developer ecosystem with their lumberyard game engine, as well as a crown jewel in the form of game streaming service Twitch. the Twitch service (not to mention Amazon Prime) would be an ideal funnel for getting new players into subscription gaming.

Nvidia (and Facebook?)

Along with Google and Amazon, Nvidia engineers are world-class and have decades of experience with gaming hardware. They also have close relationships with major game studios, giving them an edge when it comes to getting software support for their platforms. Moreover, the Nvidia Geforce Now streaming service is already in beta and Nvidia Shield hardware is a great low-cost gaming client.

Still, Nvidia lacks a global cloud infrastructure. This means they would need to partner with one of the other big players to really make a splash. They’re already well integrated with one company at least.

Others

The main dark horse in this race is Tencent, the Chinese gaming giant. Tencent owns part of many of the world’s top gaming companies including Epic (which is already leveraging Fortnite into a larger platform play). Tencent also has a large Chinese cloud presence and the technology to expand it to the rest of the world. It’s dominance in China is all but guaranteed, but it might have a hard time competing outside Asia.

Conceivably, Apple could also make a move into game streaming as part of their push to “Services”. Still, it’s not clear how Apple would get into this business. The company may profit greatly from mobile games, but most of the heavy lifting is done by third-party developers. Besides, the first customers of a game subscription service would likely be hardcore console gamers, not those who primarily play on mobile.

The Melee

Really there could be over 10 companies in this battle¹

In this great new gaming war, we can identify a few obvious components that any company will need to succeed. These include:

  1. A global cloud infrastructure (compute, networking, storage, graphics etc. as well as experience running cloud services)
  2. A client hardware solution (assuming that not all gaming can be done on phones)
  3. A solid brand in the video game world
  4. A funnel to get new players onto a subscription service
  5. Games. Lots of them will be needed to differentiate a new offering.

With these requirements in mind, we can see how all the combatants in the Cloud Gaming Wars stack up.

If a company is serious about launching a complete service, they will need to check all of these boxes. This means we can expect partnerships (likely for Nvidia), acquisitions (likely for Google/Amazon), as well as game studio mergers. After all, those studios will need to defend themselves against the coming onslaught of the tech titans.

Winners and Losers

As with all technological shifts, there are bound to be major winners and losers. Here is who I think will be helped and who will be harmed by this transition.

Winner — The Cloud Gaming Aggregator

As power-law dictates, there will be at most one or two big winners from the cloud gaming wars. These big fish will be able to aggregate a huge chunk of global gaming demand and thus capture a huge share of the profits. They will be the biggest winner here, which is why we can expect this fight to be intense.

Winner — Short Term — Game Studios

Just as Netflix created a huge demand for video content, cloud gaming could create unprecedented demand for games. Top cloud contenders will also need differentiated content. This means that they will pay top dollar for exclusive games, and maybe even for game studios. I wouldn’t be surprised to see some major acquisitions in this space.

Loser — Long Term — Game Publishers

The problem for game studios is that any successful streaming service would dis-intermediate them from their customers. Companies like Electronic Arts, and Activision Blizzard are most at risk. These companies have long had platform dreams. They are lucky that Windows PCs provide an open playing field for them to form direct relationships with customers. They may soon find themselves in much tougher strategic positions, having to pay a hefty tax to whoever owns gaming customers.

Winner — The Gaming Public

Although the technology needed to facilitate cloud gaming will likely take some time to mature, it will have profound consequences. Suddenly it will be possible to play AAA games on cheap phones and set-top boxes. It will open up amazing experiences to anyone, whether on the couch or on the go.

More importantly, by freeing games from the requirements of PCs and consoles, we might see some truly amazing things. Right now, video games are limited by the power and thermal constraints of gaming hardware. In a data center, we could see games that run on clusters of ultra-powerful systems with server-level cooling. These games could stream to everyone’s pockets, connecting people all over the world in new experiences. After what is sure to be a long fight in the cloud wars, the future of gaming should be full of sunny days.

Notes

1 — there are a TON of other competitors in this space. These include:

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